Tuesday 3 February 2009

Passive aggressive

The best lack all conviction, wrote Yeats, while the worst are full of passionate intensity. Investors would go along with that. Allocations to index funds and exchange-traded funds – opinion-less pools of capital that track a specific stock or bond benchmark – have surged in recent months. Vanguard Group, the American indexing juggernaut, now plans to use the UK as a base for a global expansion.

Faith in the genius of stock-pickers is at an undeniably low ebb. Two years ago, for example, quoted UK fund managers traded at a vigorous 15 to 23 times forward earnings. They’re now between 5 and 14 (and, stripped of takeover speculation, would be cheaper still). Institutions are now paying heed to the evidence of a series of Standard & Poor’s studies which suggest that the best way for investors to guarantee their fair share of market returns is to throw the net as wide as possible while keeping fees to a minimum.

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